What is Nifty Smallcap 250 Quality 50 Index: Constituents, Methodology & Sector Allocation?

The Nifty Smallcap 250 Quality 50 index consist of 50 small-cap stocks that are part of the Nifty Smallcap 250 Index. These 50 stocks as of 30 June, 2023 are:

What’s more, the weight the individual stocks on the Nifty Smallcap250 Quality 50 index is based on the combination of the quality score of the stock and its free-float market capitalization. The individual weight of the top 10 small-cap companies featured on this index are as follows:

As you can see, the weight of any individual small-cap stock featured on the Nifty Smallcap 250 Quality 50 index is less than 5%. This can help minimize the overall concentration risk of any index fund or exchange traded fund (ETF) that is based on this strategy index.

The 50 small-cap stocks chosen for this index are selected from the Nifty Smallcap 250 index based on their individual quality scores. Even then, they resulting index is well-diversified across multiple sectors. This means any scheme that replicates the Nifty Smallcap 250 Quality 50 will feature a diversified portfolio. Below are the key sectors featured on the index as of 30th June, 2023:

The Quality 50 index consists of small-cap equity stocks and it is always recommended that one stays invested for the long term i.e. for periods of 5 years or longer in order to maximize potential returns. This is why it is important to know not just the short-term but also the long-term returns that the Nifty Smallcap 250 Quality 50 has delivered till date. Below are the returns delivered by this strategic index over different time periods:

As per the SEBI (Securities Exchange Board of India) small cap stocks are listed equity shares of companies ranked 250th or lower on the basis of free-float market cap. Due to the relatively small size of these companies, the growth potential of these stocks is significantly high. However, these stocks are also prone to a high degree of volatility especially in the short term. This means that the potentially high returns of small cap equity funds comes at the cost of significantly high short-term volatility risk.

As a result, it is recommended that investors remain invested for the long-term i.e. for a time period of 5 years or longer in order to maximize the potential returns from their investment. To sum up, small cap stocks are usually considered suitable investments for individuals who have a high degree of risk tolerance and are seeking potentially high long-term returns from their equity investments.